PPF vs NPS: Very detailed comparison for retirement fund - EXPLAINED

PPF vs NPS: Public Provident Fund (PPF) and National Pension System (NPS) are some of the most popular retirement oriented schemes. According to tax and investment experts, PPF account helps an investor fetch income tax exemption on up to Rs 1.5 lakh investment in a financial year and at the same time, it helps investors enjoy tax benefit on the PPF interest earned and the maturity amount. While in the NPS, the investor has tax exemption on up to Rs 1.5 lakh investment in one financial year and then one has to pay income tax on 40 per cent annuity. Thus, NPS Scheme is not 100 per cent tax exempted like PPF. But, still, if someone has a slightly higher risk appetite, then NPS is better than PPF, they said.

Speaking on the PPF vs NPS; SEBI registered tax and investment expert Jitendra Solanki said, "PPF is completely a debt investment while in an NPS account, one has the liberty to choose a mix of equity and debt investment. In NPS, there are two accounts — equity and debt. In NPS, one can invest up to 75 per cent in equity. So, if a person has a slightly high-risk appetite, then one should go for 50:50 in both equity and debt that will help get around 10 per cent return in the long-term perspective."

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Kartik Jhaveri, Director — Asset Management at Transcend Consultants said, "PPF interest rate is currently 7.1 per cent but it doesn't mean PPF is less attractive than NPS. It depends upon the risk appetite of the investor. If the risk appetite of an investor is low then 7.1 per cent PPF interest rate is much attractive for him or her instead of risk-oriented NPS as its return is market-linked."

Jhaveri said that NPS account holders enjoy income tax exemption on up to Rs 50,000 investment in a particular financial year. This benefit is exclusive from Rs 1.5 lakh Section 80C benefit. So, if a person has a low-risk appetite, then one should go for the first Rs 1.5 lakh investment in PPF account and rest Rs 50,000 in NPS choosing 50:50 ratio in equity and debt NPS accounts.

However, both experts agreed that if someone has a high-risk appetite, then a market-linked NPS account is a better option for them instead of a PPF account.